Building Credit the Smart Way
Your credit score provides a snapshot of your financial history. Creditors use the information on your credit report to verify if you’re worthy of a loan, rental apartment or other transaction. You can’t get credit without having credit, however. Explore the various ways that you can build credit the smart way. A slow-and-steady pace is the goal.
Pay Everything On Time – Making on-time payments on every bill must be your priority because each payment is reported on your credit report. Important bills might include electricity, gas and student loans. You may not have a credit card yet, but your on-time payments will encourage creditors to lend you money in the future. If you’re ever late on a payment, try to pay it as soon as possible. Debt payments made 30 days later or more typically hurt your credit score.
Try a Secured Credit Card – Most unsecured credit cards require an established credit history in order to get approved. As an alternative, look for secured cards geared toward new borrowers. These cards require a cash deposit on the account. Your credit limit equals the deposit amount. As you charge purchases on the card and pay off your balance, you’ll build a positive credit history. After some time passes (usually six months to a year), you can upgrade to an unsecured credit card and get your deposit back.
Become an Authorized User – If you’re wary about opening a credit card, think about becoming an authorized user on someone else’s credit card (such as a friend or relative). Although the card isn’t yours, you typically have access to the credit history associated with that card. Many credit-card companies report the histories on every user of the account, including the authorized individuals. You don’t even have to use the card to get the history imported onto your credit report. But any negative history will also show up, so it’s important to be open and honest with the cardholder.
Get a Cosigner for a Loan – Another roundabout way to build credit is to apply for a loan with a cosigner. Their credit history and income contribute to a stronger application and you can make payments to build your credit history. As long as it’s paid off according to the loan terms, your credit will only benefit from this activity.
Keep Every Credit Line – As you gain more credit, some accounts may be more active than others. You might be tempted to close a few accounts, but instead keep those accounts open (unless you’re paying an annual fee). Charge something to them at times to keep them active. When creditors see that you have a lot of unused credit, it increases your credit score. Plus, the age of accounts is also taken into account, so older credit cards also give your score a boost.
Remember to check your credit report at least once a year. Verify that everything is correct, including both the good and the bad. If there are any discrepancies, such as late payments or incorrect balances, file a dispute with the credit bureau.